VAT in the Gulf states

As of January 1, 2018, a VAT system has been in place in the member states of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE). Or has it…?

Well, yes, but only partly so. Certainly, the UAE and Saudi Arabia have already had legislation in place since 2018. When I was in Dubai, in March 2018, there was still a general panic concerning VAT, not just because it makes life more expensive, but because VAT returns necessarily involve scrutiny of books as well. In other words: the introduction of VAT in the UAE and Saudi Arabia not only provides those states with an extra non-fossil source of income, but actually professionalises the business climate: in my book, a sound long-term strategy, for more than one reason. In contrast, during a subsequent visit, later that year, I observed that both businesses and consumers seemed to have got a bit more used to VAT.

Bahrain has VAT in place since January 2019. VAT there, however, has more zero-rated categories than in the UAE and Saudi Arabia, so as not to hit the local consumer. The question is whether this is tenable, since, after all, is (ultimately) taxing consumers not the whole point of VAT???

When will the remaining states, Kuwait, Oman and Qatar, implement the VAT system?

– the Kuwaiti parliament has postponed the introduction of VAT to 2021.

– Oman will start with VAT as of September 2019.

– Qatar is not currently engaged in official communication with the other Gulf states, which, for now, means that introduction of VAT has been postponed indefinitely.

The VAT system in the Gulf nations is modelled on the European system and closely resembles it. There is one rate (5%) and a number of exempted services and products (quite differently applied in Bahrain than in the UAE and Saudi Arabia). There is also, like in the UK, and like in the Netherlands (but in a different way), a threshold for VAT obligations. At present, companies with turnover of less than ca.EUR 90.000 per year do not charge VAT to their customers.

As a visitor to the UAE, Saudi Arabia or Bahrain, you will need to pay VAT on a variety of services. In principle, however, VAT is a tax on consumption. Entrepreneurs should be able to get it back. Refund should be possible. Again I say: in principle, since the refunding of VAT has so far proved troublesome. Nevertheless, for significant sums, it is most definitely worth the effort.

Need more information about VAT in the Gulf States? Want to register for VAT in one of these countries? Want to claim a VAT refund from the UAE, Bahrain or Saudi Arabia? Have any other questions? If so, get in touch with our Middle East specialist, Joost de Leeuw.